The McGee Corporation finds it is necessary to determine its marginal cost of capital. McGee’s current capital structure calls for 40 percent debt, 30 percent preferred stock, and 30 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 9.6 percent; preferred stock, 9.0 percent; retained earnings, 10.0 percent; and new common stock, 11.4 percent.

a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.)

b. If the firm has $28.5 million in retained earnings, at what size capital structure will the firm run out of retained earnings?

c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 30 percent of the capital structure, but will all be in the form of new common stock, Kn.)

d. The 9.6 percent cost of debt referred to above applies only to the first $30 million of debt. After that, the cost of debt will be 11.2 percent. At what size capital structure will there be a change in the cost of debt

e. What will the marginal cost of capital be immediately after that point?

During the first month of operations, martinson services, inc., completed the following transactions: jan 2 martinson services received $65,000 cash and issued common stock to the stockholders. 3 purchased supplies, $1,000, and equipment, $12,000, on account. 4 performed services for a customer and received cash, $5,500. 7 paid cash to acquire land, $39,000. 11 performed services for a customer and billed the customer, $4,100. martinson expects to collect within one month 16 paid for the equipment purchased january 3 on account. 17 paid for newspaper advertising, $600. 18 received partial payment from customer on account, $2,000. 22 paid the water and electricity bills, $430. 29 received $2,600 cash for servicing the heating unit of a customer. 31 paid employee salary, $2,900. 31 declared and paid dividends of $1,800. requirements 1. record each transaction in the journal. key each transaction by date. explanations are not required. 2. post the transactions to the t-accounts, using transaction dates as posting references. label the ending balance of each account bal, as shown in the chapter. 3. prepare the trial balance of martinson services, inc., at january 31 of the current year. 4. mark martinson, the manager, asks you how much in total resources the business has to work with, how much it owes, and whether january was profitable (and by how much)?

In the supply-and-demand schedule shown above, at the lowest price of $50, producers supply music players and consumers demand music players.

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